04/26/2012

Guns versus at will employment

Kentucky Employees May Not Be Fired for Lawfully Storing Guns in Their Cars

That’s what Kentucky statutes provide, and today the Kentucky Supreme Court applied this rule in Mitchell v. University of Kentucky (Ky. Apr. 26, 2012). There was something of a complication because the defendant was a university, and state law provides universities with generally broad authority to restrict weapons on their property. But the court concluded that the statutory provisions allowing employees to lawfully store guns in their cars is an exception from that broad university power.

As Clayton Cramer explains, the Mitchell case "ruled that an employee and grad student who was fired from his job for having a handgun in his car (for which he had a concealed handgun license) has a valid basis for a wrongful termination suit against the university. It's a complicated discussion, but the core of the argument is that Mitchell was exercising his right to keep and bear arms in conformity with Kentucky law. While the university has some authority to regulate possession of arms on university property, when those regulations are in conflict with public policy, as defined by the state legislature, the university's rules lose the fight."

I'm not a Second Amendment enthusiast, but set that issue aside. What bugs me about cases like this is the implications for the doctrine of at-will employment. Cases like this illustrate that both right and left are willing to throw at-will employment under the bus to advance policy goals. In contrast, I think at-will employment (except, of course, for tenured law professors ) is a crucial social policy that deserves better from those of us on the right who respect free enterprise and free markets.

The economic effects of "public policy"-based exceptions to the at-will employment doctrine are well-established.

There are predictable economic effects associated with the increasing acceptance of the wrongful-termination doctrine. In effect, it creates for workers some degree of property right in their existing jobs. These additional rights tend to increase the costs to employers of hiring labor. For example, the potential threat of legal action resulting in liability awards to aggrieved employees now becomes a part of the cost calculus that employers must make when considering the hiring of new workers. Also, the threat of such actions by employees makes it more difficult for employers to adjust their usage of labor in an efficient manner to fit changing market conditions. To a certain extent, the labor input into the productive process no longer can be treated as a variable input. Rather, it has acquired some of the characteristics of a fixed input.

The presence of additional labor costs associated with the employment relationship requires a response by employers. There are two options open to them. One is through changes in the level of workers' compensation. Added labor costs perceived by those who hire labor may be passed on to employees by downward adjustments in labor compensation. The other possibility is to reduce the number of workers hired. The mix of these two options will depend on the nature of the elasticities of demand for and supply of labor. This is spelled out in the Technical Appendix. Using what we view as a reasonable set of these elasticities, also described in the Technical Appendix, it appears that about 85 percent of any additional labor cost arising out of the emergence of the wrongful-termination doctrine will be passed on to employees in the form of reduced wages and benefits for workers. The remainder represents what can be thought of as "net uncompensated costs" to the employer and will negatively affect the willingness of employers to hire workers. ...

Lawyers, labor unions, and other groups have successfully sought changes in the legal environment in which business operates to subvert the sanctity of private contracts, particularly the ancient doctrine of employment-at-will. In a sense, these developments are a form of stealth taxation. They have imposed very significant and real burdens on the American people. ... This is stealth taxation because it is a burden that was not imposed in a manner that was clear and open to the taxpayers. Legislatures did not in a single historic vote decide to radically revise our system of contracts and property rights. Moreover, it is highly regressive taxation, falling heavily on the poor and disadvantaged. (Link)

Another paper summarizes the reasons this form of stealth taxation is highly inefficient:

Employment-at-will dominated other potential terms of exchange because it was efficient. If an employee can be dismissed at any time and for any reason, then said employee has every reason to be productive. Productive employees have little to fear from arbitrary dismissal, since profit-seeking employers can only hurt themselves by dismissing them. Even today, employment-at-will is embraced and long-term contracts avoided in most cases outside of union and government employment.

If at-will contracts are not the best arrangement for those involved, the parties are always free to modify their agreement to mutual advantage. Transaction costs between the two parties are extremely low, and advocates of intervention have never been able to document any substantial third-party effects that justify interference on efficiency grounds. The at-will contract allows more-or-less continuous minor adjustments of contract terms in any direction on a mutually agreeable basis. The arrangement is self-enforcing because a mix of formal and informal controls link payments to employee value and effort rendered. The arrangement avoids the problems inherent in explicit contract language and its inevitable unforeseen gaps, as well as the incentive deficiencies and shirking problems accompanying a fixed duration of employment. While average U.S. job tenure is eight years, it is voluntary markets, not unjust dismissal laws, that sustain such relations. (Link)

You might say, "well, this is just a little exception to at will employment and it protects Constitutional rights." If so, you would be wrong. It would take a remarkably extremist understanding of the Second Amendment to believe that one has a Constitutional right to possess firearms on your employer's property.

In any case, it is the steady erosion of carving out one "little exception" to the at will doctrine after another that has essentially eviscerated that doctrine.

The new public policy doctrines prohibit employers from dismissing employees for performing acts protected by public policy or for declining to commit acts prohibited by public policy. While the public policy exceptions may be the least controversial incursions against at-will employment, problems with these exceptions abound. The term "public policy" evades precise and uniform definition. Can an exception be declared by legislative action only? Or can it emanate from judicial and other sources? The open-ended nature of public policy exceptions is typified by the California court that in Peterman v. Local 396 (1959) declared that anything that contravenes "good morals or any established interests of society" constitutes action against public policy. SincePalmattere v. International Harvester (1981), Illinois courts have expansively defined public policy as "that which is right and just and collectively affects the state’s citizenry." And in Nees v. Hocks (1975), an Oregon court declared that an employer can be held responsible for dismissing an employee "for a socially undesirable motive."

From an economic point of view, a public policy prohibition on dismissal might have an efficiency rationale based on third-party effects. Consider a relatively uncontroversial example: no dismissal for employee absence due to jury duty. The rationale behind these laws is that jury service is a public service, public good, or externality-rich action that allegedly serves the general interest. But even if this proposition is accepted, the cost is not spread across the entire community; rather, it is forced on the juror-employee and his firm’s owners. The tax, or "taking," in other words, is suffered by the absent employee and the unlucky business owners who might otherwise have replaced that employee. The cost of jury duty has been arbitrarily externalized by the courts, legislature, and general public. (Link)

In sum, I don't care whether the guy got fired for having a gun in his car or for [insert here a politically incorrect reason that would have some hyper-sensitive, far-left UCLA law student with no sense of humor running off to once again call on the Dean and Chancellor to fire me for daring to exercise my free speech rights ... not that I'm bitter or anything]. Whether it's a policy preference of right or left, only truly fundamental social goals like ending race discimination ought to trump the principle of at-will employment.

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Kentucky Employees May Not Be Fired for Lawfully Storing Guns in Their Cars

That’s what Kentucky statutes provide, and today the Kentucky Supreme Court applied this rule in Mitchell v. University of Kentucky (Ky. Apr. 26, 2012). There was something of a complication because the defendant was a university, and state law provides universities with generally broad authority to restrict weapons on their property. But the court concluded that the statutory provisions allowing employees to lawfully store guns in their cars is an exception from that broad university power.

As Clayton Cramer explains, the Mitchell case "ruled that an employee and grad student who was fired from his job for having a handgun in his car (for which he had a concealed handgun license) has a valid basis for a wrongful termination suit against the university. It's a complicated discussion, but the core of the argument is that Mitchell was exercising his right to keep and bear arms in conformity with Kentucky law. While the university has some authority to regulate possession of arms on university property, when those regulations are in conflict with public policy, as defined by the state legislature, the university's rules lose the fight."

I'm not a Second Amendment enthusiast, but set that issue aside. What bugs me about cases like this is the implications for the doctrine of at-will employment. Cases like this illustrate that both right and left are willing to throw at-will employment under the bus to advance policy goals. In contrast, I think at-will employment (except, of course, for tenured law professors ) is a crucial social policy that deserves better from those of us on the right who respect free enterprise and free markets.

The economic effects of "public policy"-based exceptions to the at-will employment doctrine are well-established.

There are predictable economic effects associated with the increasing acceptance of the wrongful-termination doctrine. In effect, it creates for workers some degree of property right in their existing jobs. These additional rights tend to increase the costs to employers of hiring labor. For example, the potential threat of legal action resulting in liability awards to aggrieved employees now becomes a part of the cost calculus that employers must make when considering the hiring of new workers. Also, the threat of such actions by employees makes it more difficult for employers to adjust their usage of labor in an efficient manner to fit changing market conditions. To a certain extent, the labor input into the productive process no longer can be treated as a variable input. Rather, it has acquired some of the characteristics of a fixed input.

The presence of additional labor costs associated with the employment relationship requires a response by employers. There are two options open to them. One is through changes in the level of workers' compensation. Added labor costs perceived by those who hire labor may be passed on to employees by downward adjustments in labor compensation. The other possibility is to reduce the number of workers hired. The mix of these two options will depend on the nature of the elasticities of demand for and supply of labor. This is spelled out in the Technical Appendix. Using what we view as a reasonable set of these elasticities, also described in the Technical Appendix, it appears that about 85 percent of any additional labor cost arising out of the emergence of the wrongful-termination doctrine will be passed on to employees in the form of reduced wages and benefits for workers. The remainder represents what can be thought of as "net uncompensated costs" to the employer and will negatively affect the willingness of employers to hire workers. ...

Lawyers, labor unions, and other groups have successfully sought changes in the legal environment in which business operates to subvert the sanctity of private contracts, particularly the ancient doctrine of employment-at-will. In a sense, these developments are a form of stealth taxation. They have imposed very significant and real burdens on the American people. ... This is stealth taxation because it is a burden that was not imposed in a manner that was clear and open to the taxpayers. Legislatures did not in a single historic vote decide to radically revise our system of contracts and property rights. Moreover, it is highly regressive taxation, falling heavily on the poor and disadvantaged. (Link)

Another paper summarizes the reasons this form of stealth taxation is highly inefficient:

Employment-at-will dominated other potential terms of exchange because it was efficient. If an employee can be dismissed at any time and for any reason, then said employee has every reason to be productive. Productive employees have little to fear from arbitrary dismissal, since profit-seeking employers can only hurt themselves by dismissing them. Even today, employment-at-will is embraced and long-term contracts avoided in most cases outside of union and government employment.

If at-will contracts are not the best arrangement for those involved, the parties are always free to modify their agreement to mutual advantage. Transaction costs between the two parties are extremely low, and advocates of intervention have never been able to document any substantial third-party effects that justify interference on efficiency grounds. The at-will contract allows more-or-less continuous minor adjustments of contract terms in any direction on a mutually agreeable basis. The arrangement is self-enforcing because a mix of formal and informal controls link payments to employee value and effort rendered. The arrangement avoids the problems inherent in explicit contract language and its inevitable unforeseen gaps, as well as the incentive deficiencies and shirking problems accompanying a fixed duration of employment. While average U.S. job tenure is eight years, it is voluntary markets, not unjust dismissal laws, that sustain such relations. (Link)

You might say, "well, this is just a little exception to at will employment and it protects Constitutional rights." If so, you would be wrong. It would take a remarkably extremist understanding of the Second Amendment to believe that one has a Constitutional right to possess firearms on your employer's property.

In any case, it is the steady erosion of carving out one "little exception" to the at will doctrine after another that has essentially eviscerated that doctrine.

The new public policy doctrines prohibit employers from dismissing employees for performing acts protected by public policy or for declining to commit acts prohibited by public policy. While the public policy exceptions may be the least controversial incursions against at-will employment, problems with these exceptions abound. The term "public policy" evades precise and uniform definition. Can an exception be declared by legislative action only? Or can it emanate from judicial and other sources? The open-ended nature of public policy exceptions is typified by the California court that in Peterman v. Local 396 (1959) declared that anything that contravenes "good morals or any established interests of society" constitutes action against public policy. SincePalmattere v. International Harvester (1981), Illinois courts have expansively defined public policy as "that which is right and just and collectively affects the state’s citizenry." And in Nees v. Hocks (1975), an Oregon court declared that an employer can be held responsible for dismissing an employee "for a socially undesirable motive."

From an economic point of view, a public policy prohibition on dismissal might have an efficiency rationale based on third-party effects. Consider a relatively uncontroversial example: no dismissal for employee absence due to jury duty. The rationale behind these laws is that jury service is a public service, public good, or externality-rich action that allegedly serves the general interest. But even if this proposition is accepted, the cost is not spread across the entire community; rather, it is forced on the juror-employee and his firm’s owners. The tax, or "taking," in other words, is suffered by the absent employee and the unlucky business owners who might otherwise have replaced that employee. The cost of jury duty has been arbitrarily externalized by the courts, legislature, and general public. (Link)

In sum, I don't care whether the guy got fired for having a gun in his car or for [insert here a politically incorrect reason that would have some hyper-sensitive, far-left UCLA law student with no sense of humor running off to once again call on the Dean and Chancellor to fire me for daring to exercise my free speech rights ... not that I'm bitter or anything]. Whether it's a policy preference of right or left, only truly fundamental social goals like ending race discimination ought to trump the principle of at-will employment.